Contract transparency critical to enable public accountability in the extractive sector
25 July 2017
While the global transparency movement for the extractive industries has made important gains on the questions of how much companies pay and governments receive for the exploitation of natural resources (payment transparency) and who ultimately benefits from or controls extractive industry activities (beneficial ownership disclosure), information about the agreements on which these industries are based remains scant in many countries.
Recent developments including the Extractive Industry Transparency Initiative (EITI) and mandatory disclosure laws under which EU and Canadian oil, gas and mining companies must disclose the payments made to governments have changed the transparency landscape. After revenue transparency, beneficial ownership information is now becoming public. But without the contracts, licenses or permits that outline the rights and obligations agreed by government and companies, how can civil society effectively monitor extractive industry projects.
At a Publish What You Pay Data Extractors Workshop last week in Accra, Rob Pitman of the Natural Resource Governance Institute summarised the situation, “we may know now what mining companies are paying to government as well as who is benefiting from mining activities. But without the knowledge of the reasons why mining companies make payments to government, we cannot know for certain whether countries are getting a fair share of taxes from mining companies”. The workshop took place on the side of the Africa Open Data Conference running from 17 to 21 July under the theme “Open Data for Sustainable Development in Africa.”
In most countries contracts, licenses, and permits lay out the rights and obligations between government and a mining company on the exploration or exploitation of oil gas or mineral wealth. Given that contract transparency is a very topical issue in the agenda of curbing corruption in the extractive sector, PWYP had several questions for Rob Pitman who keenly shared fascinating perspectives on the issue.
Mukasiri Sibanda who works with the Zimbabwe Environmental Law Association (ZELA) was keen to learn more on contract transparency under licensing regimes like Zimbabwe. South Africa’s PWYP coordinator’s interest was on contract transparency and open contract basics.
Jessie Cato, National Coordinator for Publish What You pay Australia wanted to understand how contract transparency applied in different country contexts, how it fit within the larger conversation about extractives transparency, particularly for countries like Australia where they are campaigning for a mandatory disclosure reporting regime.
Quentin Parrinello, National Coordinator for Publish What You Pay France wanted to hear more about concrete best practices around Open Contracting; which country are doing it? How much human resources are they using? How are local communities already using it?
As a starting point, Rob explained that contract transparency is about ensuring transparency of the legal framework. In almost every country in the world, when laws and regulations are established they are made public so that government employees, companies and citizens know what the rules are and can check if they are being followed. A big exception for this practice exists in the extractive industries, where many of the rules that govern big projects are hidden away in contracts, licenses or permits, which are not accessible to the public. Contract disclosure is about making these documents publicly accessible.
While much needs to be done, important gains have been made. There are now more than 39 governments that have officially published contracts, with 17 jurisdictions now publishing all or nearly all contracts. Triangulating the results of the recently released Resource Governance Index with the findings of Past the Tipping Point – an NRGI enquiry of contract disclosure practices within EITI release earlier in 2017 – we see that there are now at least 27 jurisdictions with laws requiring the disclosure of contracts. Several companies including Kosmos Energy, Tullow Oil and Rio Tinto, have made public statements in support of the contract disclosure and many more make disclosures contracts in stock exchange filings in their home countries.
While much needs to be done, important gains have been made. There are now more than 39 governments that have officially published contracts, with 17 jurisdictions now publishing all or nearly all contracts. Triangulating the results of the recently released Resource Governance Index with the findings of Past the Tipping Point – an NRGI enquiry of contract disclosure practices within EITI release earlier in 2017 – we see that there are now at least 27 jurisdictions with laws requiring the disclosure of contracts. Several companies including Kosmos Energy, Tullow Oil and Rio Tinto , have made public statements in support of the contract disclosure and many more make disclosures contracts in stock exchange filings in their home countries.
In recent years, people are beginning to see contract disclosure as an essential part of the process of open contracting. This is the movement that aims toward transparency of processes by which contracts are developed. Initially, open contracting was developed to make public procurement more open for citizen accountability. Standards have been developed in this field. The trend on open contracting can also be used in the extractive sector to promote disclosure across the whole contracting process like public procurement processes.
Mexico is an interesting example of open contracting best practice in the extractive sector.Its online platform provides information concerning the tendering, contract and performance of the contract like revenue generated by a company and payments made to government.
Standards such as EITI have been influential to bring on board mandatory disclosure of payments made to governments by corporates listed in Canada and EU. It is now possible for citizens in resources rich countries that have not embraced best practice on company payments to government to access such information through the ESTIMA reports, Zimbabwe is a case in point. It is important to take note though that such information can be only accessed provided the company in question is listed directly or indirectly in Canada and EU.
Right now, EITI is targeting for public disclosure of beneficial ownership by 2020.EITI should also move with speed on contract disclosure to influence a broader scope on mandatory disclosure..
The corruption risks in the award of extractive sector have been compiled by NRGI here. Such studies help CSOs and the citizens to have a better understanding on why open contracting is important. That said, laws on transparency are not enough. Corporates must promote ethical conduct by paying a fair share of taxes in countries where they are extracting resources. It must never be forgotten that the history of companies and exploitation of Africa’s natural resources is quite dirty. Countries such as Zimbabwe were colonised by a company, the British South Africa Company.
Mukasiri Sibanda (@mukasiri) is an economic governance officer. He is interested in mineral resource governance. He blogs at Mukasiri's Blog. Mukasiri works with the Zimbabwe Environmental law Association